Russia’s Miratorg suffers profit losses for beef project

Analysis company SPARK has reported that Bryansk Meat Company – the Miratorg subsidiary that manages its beef clusters – saw a net loss of RUB2.4 billion ($40m) last year, compared with an RUB9.46bn ($160m) net profit in 2016.

Revenue for the company reached RUB16bn ($248m) in 2017, compared to RUB13.6bn ($211m) the previous year, primarily due to an increase in production volumes to 82,000 tonnes (t) from 51,600t in 2016.

Russian analysts have ascribed the company’s profit loss to a number of factors, including shrinking state aid, a high debt burden and weak demand for beef in the Russian market.

“Profitability in the ​[beef] industry depends on the purchasing power of the population, growth in demand for high-quality meat and state support,”​ Lyubov Burdienko, commercial director of information and analysis agency EMEAT told GlobalMeatNews​.

“As of late 2017, the debt burden of Bryansk Meat Company amounted to RUB77bn ($1.19bn) with interest on the debt amounting to another RUB6.6bn ($102m). If payments on the interest rate were not subsidised ​[by the government] to some extent, it could lead to a negative financial performance,”​ Burdienko explained.

Ekaterina Mikhaleva, senior analyst at Russian consulting agency Neo Tsentr, told local magazine Agroinvestor ​that, since the start of Miratorg’s beef project five years ago, the company had not registered any profit from sales. Moreover, the losses were stacking up.

“This trend of losses on gross profit suggests the company has significant difficulties to overcome,”​ said Mikhaleva.

Revaluation of liabilities​

Dmitry Sergeev, press secretary of Miratorg, told GlobalMeatNews ​that the main factor in Bryansk Meat Company’s negative financial performance was a revaluation of the company’s foreign exchange-denominated loan liabilities. He stressed that the losses were in no way related to operational efficiency.

“The cattle project has a very long payback period – more than 12 years – and, in the first four years, the company generates no profit margins, only makes investments and bears the costs​,” said Sergeev.

In general, Bryansk Meat Company is continuing to develop successfully, growing production and processing in accordance with the planned increase in its cattle herd, as well as boosting sales of high-quality beef and expanding the geographical reach of its products, Sergeev claimed.

Miratorg’s beef cluster in Central Russia is targeting a capacity of 400,000 head or 130-150,000t of beef per year by 2020. Russian Government officials earlier estimated that, as soon as this full production performance was achieved, Miratorg could satisfy up to 20% of the demand for beef in the Russian market. The company plans to produce 100,000t of beef in 2018.